Local game industry charting course into unexplored territory

"Dark Void" is more than just a wild new flying and shooting title from Redmond's Airtight Games. The video game, which goes on sale next month, is turning out to be a metaphor for what's happening in the Seattle-area game industry.

"Dark Void" is more than just a wild new flying and shooting title from Redmond's Airtight Games.

The video game, which goes on sale next month, is turning out to be a metaphor for what's happening in the Seattle-area game industry.

After years of stunning growth and breakout hits that established the region as a mecca for game developers and publishers, companies are adjusting to harsh economic conditions and plunging toward a dark, uncertain 2010.

It's similar to the way "Dark Void's" main character, a swaggering 1950s aviator, suddenly plummets through clouds over the Bermuda Triangle into a strange, unknown world.

Does he have skills and technology to blast his way through?

It looks ominous, with market researcher NPD reporting a 13 percent drop in game sales this year and major publishers closing studios and laying off thousands. Yet games remain high on holiday wish lists, and price cuts are helping Microsoft, Sony and Nintendo keep selling consoles.

There's more than entertainment at stake.

Video games are one of the more promising new industries in the region, where more than 150 companies have created 15,000 jobs in recent years, according to research by economic-development group Enterprise Seattle.

It turned out the sector isn't immune from the recession after all, and it's nearly as risky as biotech, Seattle's other next big thing.

Still, players are expecting a turnaround next year.

"Publishers are in a conservative mode right now, but they still need games — that's what it comes down to," said Ed Fries, a former Microsoft Games Studio boss who co-founded Airtight in 2004.

"Dark Void" is largely done. It goes on sale Jan. 19 for Xbox, PlayStation and PC.

Airtight's already landed another major publishing deal for a new title, and it's close to finalizing a third deal.

Capcom, publisher of "Dark Void," is waiting to see how it flies before funding a sequel, but Airtight has sketched out a follow-up.

A fresh crop coming

The game is among a slew of new titles appearing in early 2010, which should help boost industry sales by more than 10 percent in the first half of the year, according to Michael Pachter, an analyst at Wedbush Securities in Los Angeles.

Compared with the slow sales and meager lineup in early 2009, next year's offerings should make for a dramatically better year and restore confidence in the industry, he said.

Game publishers (and media conglomerates) are then likely to resume hiring and shopping for game studios to acquire, with Seattle's PopCap and Bellevue's Valve Software among the most desirable targets, Pachter said.

"I think they're absolute herd mentality — when things are bad, they freak and fire people, and when things are good, they freak and hire people," he said.

In the meantime, the situation in the trenches is unclear.

Despite $29 million in financing, Bellevue toy and game startup Smith & Tinker last week laid off about a third of its staff — cutting it to 40 — to conserve cash.

Joe Lawandus, co-founder and president, said it was "rightsizing." He said the company will keep growing next year but it's a more challenging environment than when it started in 2007.

"I think the days of just turning a game on and making money are long gone," he said.

"At this point, you've got to have a pretty compelling differentiation from where the rest of the marketplace is."

Airtight's Fries — who acts as a sort of godfather advising game startups — said the proliferation of new studios will slow because it's so hard to get publishing deals nowadays.

But the contraction has created opportunities for remaining companies.

"There's this weird thing where it's hard to get a publisher to sign a publishing deal with you," Fries said. "At the same time, if you talk to publishers, they're saying 'We're having a really hard time finding good, independent developer to work with.' We're somewhere in the middle of that."

Changing times

Yet Airtight may be an anomaly. The opportunity for a startup to debut with a top-grade console game may have largely passed.

With so-called "Triple A" titles costing $20 million or more to produce, newcomers are more likely to start out building lower-cost online games, such as the titles friends play on Facebook.

That's what a group of three high-level game veterans — Matt Wilson, Corey Dangel and John Smith — decided last summer when they quit Sony Online's Bellevue studio, where they were building a massive online spy game, to start Detonator Games.

Instead of working on one $30 million project for five years, they're planning to quickly turn out "social" games for $500,000 or less that will be free to play and make money selling small upgrades and bonus material.

Self-publish

"The better business model now is to do many products quicker," Wilson said.

They can publish games themselves on sites like Facebook, and the model suits the leaner times, when people are buying fewer $50 games, he said.

"I think you're going to see a lot of the 'Triple A' folks get into the space and drive independent games back up again," he said. "It's attractive to veterans who say 'I can get something done quickly and try out a quirky idea I've had for a long time.' "

It sounds a little like what's happened in the media business, where established companies are adjusting their expensive publishing models while new ventures emerge, taking advantage of lower-cost, online distribution.

The new ventures employ fewer people and produce a different product. But they may end up selling to a larger company or becoming big themselves, and either way will give more people industry experience, said Kristina Hudson, director of the Washington Interactive Network

Wilson said the social-game space seems like the Internet boom in the late 1990s and the early days of the business.

"There's a lot of money available, a lot of startups," he said. "Some are going to be wildly successful, some are going to collapse."

Maybe the void won't be so dark after all, at least for those who find a jetpack and start blasting away.